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Source of Finance for Social Security Reform with Redistribution

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  • Yamada, Tomoaki

Abstract

This study investigates the welfare implications of social security reforms in Japan. Based on the overlapping generations model with idiosyncratic income risk, we consider four social security reform plans: (1) gradual reduction in the replacement rate by half, (2) sudden cut in the replacement rate by half, (3) introduction of a consumption tax, and (4) introduction of a capital income tax. We compute the transition paths of each case, and find that the introduction of a consumption tax and a capital income tax improves the welfare of young and future households, based on ex-ante welfare. We also reveal that two redistribution effects of the basic public pension are keys when considering social security reforms: (a) the insurance effect on lifetime income, and (b) the intertemporal effect that affects the asset and consumption profile.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16866/1/DP513.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a513.

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Length: 46 p.
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:hit:hituec:a513

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Keywords: Social Security Reform; Consumption Tax; Capital Income Tax;

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